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Rural views to decide election outcome

By Ben Rees - posted Wednesday, 1 September 2010


National Industry Councils

  1. Firms (chief executives)
  2. Trade Unions ( Presidents)
  3. State Governments
  4. Government Departments
  5. Consumers and other groups

State Industry Councils

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  1. State Governments
  2. Regional interests
  3. Firms
  4. Banks

That these recommendations would move the liberal democratic capitalist system to a new form of managed capitalism known as corporatism was never discussed. The Hawke/Keating Administration developed corporatism along the lines of the Jackson report. Under corporatism, the government organises sectoral leaders (elites) into consultative groups from which government develops policy through consultation and consensus. The elites then go back to their grass roots to sell and implement the policies. Discipline among the groups is achieved by threat of exclusion from the process.

The major problem with the system is that consensus outcomes are a furphy. Outcomes become dominated by the views of the economically and politically powerful. The excess profits tax negotiated by the government and three major miners is a classic example of the system in operation.

Enter economic philosophy

Contrary to traditional Keynesian Labor, Hawke and Keating embraced neoclassical economic philosophy. Although Parliament retained control over monetary policy direction, deregulation of the financial sector began in 1983. The Keating budget in 1988 began the introduction of free market policy to the real sector. Hawke’s 1991 Industry Statement continued the philosophy by further reducing industry protective measures. Efficiency, productivity and international competitiveness would be theoretical pathways to prosperity offered to Australian industry. While Keating formulated competition policy reform, implementation was by the Howard Administration. It was competition policy that finished the butchering of rural Australia.

The Howard Administration adopted monetarism in 1996 by granting independence to the Reserve Bank of Australia (RBA). This meant that monetary policy direction became determined by an unelected central bank pursuing monetarist economic philosophy. The Rudd and Gillard Administrations continued supporting the independence of the central bank and monetarist philosophy.

Meanwhile rural producers and manufacturing exporters were confronted with an unelected institution managing monetary and exchange rate policy based upon an unproven link between money and domestic prices. Contrary to the Coombs Report suggesting a lowering of the exchange rate in a move to free trade, the monetarist RBA uses the interest rate to influence domestic price movements and stabilise the currency to protect the current account deficit. This undermines international competitiveness of rural and manufacturing exporters.

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Economic philosophy confronts Engle’s Law

The failure to recognise the role of Engel’s Law in rural policy questions the competence of professional advisors. This 19th century law states that as incomes rise in a mature growing economy, the percentage of income spent on food declines in relative terms. Implicitly, the Law underwrites the entrenched Constitutional rights of European farmers to share in rising living standards of the EU.

Engel’s Law offers an explanations why farm input costs rise faster than output prices. Farm input prices are determined by rising input costs such as wages determined in the wider expanding economy. Farm output prices and profitability are driven by international markets underwritten by either cheap labour or government protective measures. Australian farm policy naively underwritten by free market efficiency, productivity and international competitiveness has failed to defeat Engel’s Law in the real world of corrupt international agricultural markets.

Wider policy failure: employment

Structural policy failure can be measured by sectoral employment expressed as a percentage of total employment from 1983 to 2009:

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About the Author

Ben Rees is both a farmer and a research economist. He has been a contributor to QUT research projects such as Rebuilding Rural Australia. Over the years he has been keynote and guest speaker at national and local rural meetings and conferences. Ben also participated in a 2004 Monash Farm Forum.

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